As Arizona business law attorneys, we often help entrepreneurs who are looking to start a new business. Typically, they come to us wanting to create an LLC to get their business up and running. Of course, they also come with a number of different questions that we commonly hear. Read along to discover some of these FAQs and our answers:
What is an LLC?
- An LLC is a flexible business structure that combines the liability protection of a corporation with the tax benefits and operational flexibility of a partnership or sole proprietorship.
What are the benefits of forming an LLC?
- Benefits include liability protection, pass-through taxation, operational flexibility, and fewer compliance requirements compared to corporations.
How do I form an LLC?
- Forming an LLC typically involves choosing a name, filing Articles of Organization with the Arizona Corporation Commission, creating an Operating Agreement, obtaining an EIN, and meeting other requirements related to your particular business.
What is an Operating Agreement?
- An Operating Agreement is a legal document outlining the ownership, management structure, and operating procedures of an LLC. It helps prevent disputes and ensures smooth operation. It governs the operations of your LLC so you aren’t stuck with the default rules that Arizona law has set forth.
What is limited liability protection?
- Limited liability protection means that the owners (members) of an LLC are not personally liable for the company’s debts and liabilities. Their personal assets are generally protected, provided you maintain the LLC as an entity separate from yourself. This means keeping separate bank accounts and keeping detailed books and records, among other formalities.
How is an LLC taxed?
- By default, an LLC is taxed as a pass-through entity, meaning profits and losses are reported on the owners’ personal tax returns. LLCs can also elect to be taxed as a corporation.
Can a single person form an LLC?
- Yes, a single-member LLC can be formed, providing the same liability protection and benefits as a multi-member LLC. Further, since Arizona is a community property state, an LLC with only two members who are married to each other can also be treated as a single-member LLC for tax purposes.
What is the difference between a member-managed and manager-managed LLC?
- In a member-managed LLC, all members participate in running the business. In a manager-managed LLC, designated managers handle operations, which can include non-members. The best structure depends on your goals and unique situation. The default under Arizona law is member management.
Do I need an EIN for my LLC?
- Yes, an Employer Identification Number (EIN) is required for tax purposes, hiring employees, opening bank accounts, and other business activities. If you hire our firm to create your LLC, we will obtain an EIN for you as part of the package. We can also connect you with a banker to get a business bank account established, if you wish.
What are the annual requirements for an LLC?
- Arizona is fairly lax when it comes to LLCs – there is no requirement for an LLC to file an annual report with the Arizona Corporation Commission (unlike with a corporation, where annual reports are required). We recommend holding at least annual meetings and formalizing those meetings in your books and records to maintain liability protections.
If you still have lingering thoughts or questions about creating an LLC, we are here to help! Our other blog posts contain a multitude of information that you can read over. We would also be glad to schedule you for a free, 30 minute consultation to discuss your business needs.